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The Cabinet on Wednesday approved signing of interbank local currency credit line agreement and cooperation memorandum relating to credit ratings by Exim Bank with member banks under BRICS Interbank Cooperation Mechanism.

"The agreements will promote multilateral interaction within the area of mutual interest which will deepen political and economic relations with BRICS nations," an official statement said after the Cabinet meeting chaired by Prime Minister Narendra Modi.

As the agreement and the MoU are umbrella pacts and non-binding in nature, the Board of Directors of Exim Bank has been authorised to negotiate and conclude any individual contracts and commitments within their framework.

Signing of the agreements, the release said, will position Exim Bank in the international platform along with large development finance institutions like CDS, VEB and BNDES.

At an appropriate time, Exim Bank, leveraging this umbrella agreement, could enter bilateral agreement with any of these member institutions to raise resources for its business, it said.

"As and when an opportunity arises for co-financing in commercial terms, by any two member institutions (say India and South Africa), lending in single currency by both the institutions would also be possible," it said.

The initial Master Agreement on Extending Credit Facility in Local Currency under the BRICS Interbank Cooperation Mechanism had a validity of five years, which expired in March 2017.

"It is understood that some of the member banks (like CDB and VEB; CDB and BNDES) have entered into bilateral agreements for local currency financing under the Master Agreement signed in 2012," the release said.

It further said although the current conditions are not conducive to usage, it was useful to keep the same alive as an enabling feature in case a suitable opportunity materialises in future.

Exim Bank raises resources in the off-shore market in diverse currencies and swaps to mitigate the risk.

The umbrella agreement would serve as an enabler to enter into bilateral agreements with member banks.

Cooperation Memorandum Relating to Credit Ratings would enable sharing of credit ratings amongst the BRICS member banks, based on the request received from another bank.

This, the release said, would be an ideal mechanism to mitigate the credit risks associated with cross-border financing.

"In future, such a mechanism could also serve as pre- cursor to the proposal of having an alternate rating agency by BRICS nations," it said.

The agreement and the MoU were highlighted in the BRICS Leaders Xiamen Declaration made in Xiamen, China earlier this month.